LCCA best practices

Incorporate these best practices when working with a building owner to create a lifecycle cost analysis (LCCA).

By David J. MacKay, BEMP, CPMP, LEED AP, Kohler Ronan, New York City March 10, 2015

Economic analysis is useful only if stakeholders have results and recommendations prior to making project decisions. The following best practices will help ensure your analysis stays on track:

  • Only evaluate design alternatives that meet the owner’s project requirements; all options, including the base case, need to be technically feasible.
  • Design and analysis effort is another project cost, which should always be considered. Scale effortsaccordingly.
  • Discuss the "time value of money" concept with the owner at the start of the project. Remember that the discount rate is specific to each owner, but try to discourage the use of "real" discount rates above 7% or below 2%.
  • Use a constant dollar approach for treating general price inflation; be sure to use "real" discount and escalation rates.
  • Avoid using multiple sources for initial project cost estimates; only incremental costs are necessary. If a cost estimator is on the team, have design options priced as alternates.
  • Use actual utility rate structures in the energy model, particularly when evaluating demand reduction or load-shifting strategies. If utility rate structures are not available, use the appropriate U.S. Energy Information Association (EIA) average blended rates.
  • Evaluate interdependent systems (e.g., envelope and HVAC) in concert.
  • If alternatives provide varying levels of indoor environmental quality, make adjustments in the energy model so that differences are expressed in terms of energy cost.
  • For more reliable operating, maintenance, and repair (OM&R) cost estimates, have equipment manufacturers provide quotes for preventive maintenance service contracts.
  • Provide stakeholders with results early on and be transparent about the level of uncertainty; include a sensitivity analysis to identify critical inputs. Iterate and refine input assumptions as the project progresses and more accurate data is available.

David J. MacKay is an associate with Kohler Ronan LLC in the New York City office. MacKay’s expertise includes building performance modeling, building commissioning, energy auditing, energy reduction plan development and energy procurement consulting.